Startups are young technology driven companies with innovative ideas and solutions capable of changing the status quo in their respective industries. Majority of Startups do not survive beyond their first five years of inception for a number of reasons; some of which include the lack of business acumen, managerial experience and technical expertise necessary to scale the company to the next level. A startup can, however, make up for these deficiencies by establishing an Advisory Board.
This article highlights the importance of Advisory Boards to Startups and the factors distinguishing them from the Board of Directors.
An Advisory Board is an informal body of individuals set up by the management or board of directors of a company to provide business and strategic advice to the company. Advisory Boards usually consist of industry experts who can provide relevant assistance and advice to the Startup in areas where the company is lacking such as marketing and sales of products, investment options, technical experience and regulatory support, amongst others.
Advisory boards are not a substitute for a company's board of directors. The table below highlights the differences between an Advisory Board and the Board of Directors of a company.
Members of the Advisory Board can assist Startups by bridging experience/ knowledge gaps in the management of Startups. They also provide fresh opinions and perspectives regarding the business of the company.
The appointment of well-known professionals and experts on the Advisory Board can increase the credibility of the company as clients, vendors, investors and other companies in the industry are more willing to partner with Startups who have experienced oversight.
Advisory Boards provide an informal and inexpensive avenue for Startups to gain insights from professional and experts without conferring control or decision-making powers on them.
While the establishment of an Advisory Board for a Startup is an important step towards ensuring its survival, Startups are advised to discuss with the members of the Advisory Board and agree on the workings of the advisory relationship. Such discussions should be documented and must contain provisions for remuneration (where necessary), the mode of providing advisory services as well as the protection of the company's confidential information and intellectual property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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